Dive Brief:

• The largest proxy adviser in the U.S. has sued the Securities and Exchange Commission (SEC) for issuing guidance that collapses the distinction between what it does and what proxy solicitors do, hurting shareholders.
• "We are deeply concerned that [the SEC's guidance] will be used or interpreted in a way that could impede our ability to deliver our data, research, and analyses in an independent and timely manner," said Gary Retelny, president and CEO of Institutional Shareholder Services (ISS). The company works with about 44,000 businesses worldwide.
• Proxy advisers conduct research and advise client shareholders on how to vote their shares when a company board announces a vote.

Dive Insight:

Companies hold votes on various matters, including key hires, executive salaries, and mergers and acquisitions. Unlike proxy advisors, proxy solicitors are companies hired by an interested party to round up shareholders to vote a certain way.

ISS's lawsuit, filed Oct. 31 in the U.S. District Court for the District of Columbia, takes aim at the SEC guidance, issued Aug. 21, that says proxy advisers are no different from solicitors under federal proxy rules.

"Proxy voting advice provided by proxy advisory firms generally constitutes a 'solicitation' under the federal proxy rules," the guidance said.

ISS says this view is wrong, and will hurt shareholders by making it harder for them to get independent advice on how to vote their shares.

"We believe litigation to be necessary," Retelny said, "to ensure the timeliness and independence of the advice that shareholders rely on to make decisions with regards to the governance of their publicly traded portfolio companies."

In its lawsuit, ISS said the decision is "arbitrary and capricious," outside the scope of the SEC's authority, and wasn't considered in the regular rulemaking process. With the lawsuit, ISS is seeking to invalidate the guidance.